Severance Pay Tax Calculator
Updated August 2026 · Free · No sign-up
See what your severance package is worth after taxes. Enter the gross amount — the calculator applies the 22% federal supplemental withholding, Social Security, Medicare, and your state rate, and explains lump sum vs installments.
Quick answer: US severance withholds like a bonus: 22% federal flat (37% over $1M) + 7.65% FICA + state tax — roughly 30-35% off the top. A $30,000 severance typically lands around $19,500-21,000 in your account. Over-withholding reconciles at tax filing.
How Severance Is Taxed
The IRS treats severance as supplemental wages — same category as bonuses. Paid as a separate check, federal income tax withholds at a flat 22% (mandatory 37% on amounts over $1 million); paid with a final regular paycheck, the aggregate W-4 method applies instead (often withholding more). On top: 7.65% FICA (6.2% Social Security up to the wage base + 1.45% Medicare — the Supreme Court settled in Quality Stores that severance is FICA-taxable) and state income tax where applicable.
The essential reframe: withholding ≠ tax. Severance is ordinary income at filing time; if a layoff cuts your annual income, the flat 22% probably over-withheld and comes back as a refund.
Worked Examples
Example 1 — typical package. $30,000 severance, 5% state, under the SS base: federal $6,600 + SS $1,860 + Medicare $435 + state $1,500 = $19,605 take-home (65.4%).
Example 2 — no-tax state, late-year layoff. $50,000 severance in Texas, wage base already crossed: federal $11,000 + Medicare $725 = $38,275 (76.6%) — geography and timing move the needle by five figures.
Example 3 — the refund reality. Laid off in March with $40k severance and no income until September: the year's actual bracket ends up ~12-22%, well under the withheld 30%+ → a meaningful refund at filing. Severance withholding is a timing cost, not a permanent one.
Lump Sum vs Salary-Continuation Installments
| Lump sum | Installments (salary continuation) | |
|---|---|---|
| Withholding | 22% flat supplemental | Normal W-4 tables per check |
| Unemployment benefits | Often allowed sooner (state-dependent) | Frequently delays benefits during the covered weeks |
| Risk | Money is yours immediately | Subject to plan terms; occasionally cut short by clawbacks/conditions |
| Benefits continuation | COBRA on your dime unless negotiated | Sometimes keeps you "employed" for benefits longer |
| Tax year | All income lands this year | Can straddle two tax years — useful if next year is leaner |
Six Legitimate Ways to Keep More of It
- 401(k) the final compensation: if severance rides through payroll while you're still technically employed, plans often allow deferral elections against it — sheltering income tax (not FICA). Ask before the separation date locks.
- Time the payment year: a December vs January payment moves the entire amount between tax years — powerful when next year holds unemployment or a sabbatical.
- Spread via installments when a large package would spike this year's bracket and next year looks lean.
- HSA top-up: if enrolled in an HDHP, maxing the year's HSA through payroll before exit shelters both income tax and FICA.
- Check the wage base: high earners laid off late in the year should confirm Social Security withholding stops at the cap — a 6.2% error on a big package is real money reclaimable via your return.
- Estimated-tax hygiene: if withholding under-shoots (large package + other income), a Q4 estimated payment avoids underpayment penalties.
What Else in the Exit Package Gets This Treatment
Supplemental-wage withholding also hits PTO payouts, bonuses (see the bonus tax calculator — identical math), and commission true-ups. Your final regular wages withhold normally. Two special cases: federal employees' severance pays biweekly at normal withholding (see the federal severance calculator), and UK redundancy is a different universe — tax-free to £30,000 (see the redundancy calculator).
Severance and Unemployment Benefits
State rules split three ways: some states pay unemployment alongside any severance (California), some delay benefits for the weeks a package "covers" (especially salary-continuation), and some treat lump sums and installments differently. Since the difference can be hundreds per week, check your state's rule before choosing a payment structure where the agreement offers a choice — and file for benefits immediately regardless; eligibility runs from filing, and worst case is a postponement.
Before You Sign: The Tax Questions for HR
- Separate check (22% flat) or aggregated with final pay (often higher withholding)?
- Lump sum or installments — and may I choose?
- Which tax year will payment land in?
- Is my unused PTO paid separately (it's wages — not part of the severance figure)?
- Will you process a 401(k) deferral against the payment?
Five questions, two minutes, potentially thousands of dollars — verify the whole package with the final paycheck calculator.
Frequently Asked Questions
How much tax is taken out of severance pay?
Typically 22% federal flat withholding + 7.65% FICA + state tax — about 30-35% total. Severance over $1 million withholds 37% federal on the excess.
Is severance taxed higher than regular pay?
No — it is ordinary income at filing. It is often WITHHELD at a higher rate, and the difference returns as a refund if your layoff year's income drops.
What is the take-home on $30,000 severance?
Around $19,500-21,000 depending on state — $6,600 federal, $2,295 FICA, plus state tax. Enter your numbers above for the precise figure.
Does severance pay FICA (Social Security and Medicare)?
Yes — the Supreme Court's Quality Stores decision settled it: severance is FICA wages. The 6.2% Social Security part stops if you've crossed the annual wage base.
Is a lump sum or installments better for taxes?
Lump sums land in one tax year with flat withholding; installments withhold normally and can straddle years — better when next year will be leaner. Unemployment-benefit timing often matters more than the tax difference.
Can I put severance into my 401(k)?
Often yes for amounts paid through payroll before separation finalizes — plans differ. A deferral shelters income tax (not FICA) and is worth a direct question to HR before signing.
Will I get some of the withholding back?
If the flat 22%+ exceeded your actual bracket for the year — common in layoff years with reduced income — yes, as a refund when you file.
Does severance affect unemployment benefits?
State-dependent: some pay both concurrently, others delay benefits during severance-covered weeks (installments especially). File immediately either way.
How is UK redundancy pay taxed?
Completely differently — redundancy payments are tax-free up to £30,000; the excess and all notice/holiday pay is taxed normally. Use the UK redundancy calculator for that system.
Is unused PTO payout taxed like severance?
Yes — same supplemental-wage withholding. But it is earned wages owed regardless of any severance agreement, and should be itemized separately in your final pay.
✓ Formula verified • Last updated: August 20, 2026